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Size and approach is significant for grocery stores

Super-Stores may draw the attention of the press, but the field of competition in the grocery business is being influenced by newer mid-sized specialized stores offering a bundle of services and features.

Posted on June 19, 2015 by Mark Thomas, Michigan State University Extension

National Public Radio’s Eliza Barclaw reported in March that traditional grocery stores are losing market share to a number of other competitors. In the past 10 years traditional grocery stores share of the pie has dropped about 15 percent. Larger stores, as well, are losing sales as more shoppers’ are unwilling to embark on a 2 hour journey through towering isles and are not filling their shopping cart to the brim anymore.

The average grocery store has been downsizing has for the past 3 years from a footprint of around 45,000 square feet. One reason is consumers feel overwhelmed with choices and that slows down the precious shopping time they are able to commit. In other words, less choice can have a positive spin!

Although we may not all wish to return to the personized service of clerks, changes ARE coming. Driving this phenomenon is a plethora of smaller grocery outlets. Consumers’ demand for convenience is being met by dollar stores, neighborhood outlets and even local food systems like farmers markets.

Consumers are also demanding a pleasant food gathering experience. Phil Lempert of Supermarket Guru says this means that more services will be important to consumers. He further notes that “big” chains will find it necessary to become more creative and offer flexibility.

In response to this trend, Whole Foods, whose average store size of 38,000 sq. ft., announced in May 2015 that it will launch its own smaller, lower-priced store chain called “365”. This mirrors their organic store brand while being an “affordable” option 365 days a year. The new chain will offer additional items including national “natural” and organic brands. In a press release from Whole Foods Co-CEO, Walter Robb, people want a place “that’s fresh, that’s clean” with a smaller, more neighborhood feel, a “streamlined” selection and “technology woven in.” This, I believe, will create a niche in the market place. Whole Foods currently has slightly more than 400 stores and sees future market demand to support 1200 stores. It hopes to open 5 to 10 “365” stores in 2016. Just how the mix of full sized and smaller stores will play out will be determined by the success of “365”

Heavy competition from smaller stores like Trader Joes, Sprouts and Earth Fair may have inspired this movement. Also stimulating this movement is the desire to attract millennial shoppers. “Millennials are particular about what they eat and how they spend their money on food” according to the Supermarket News webpage.

For food product companies, this reorganization of more local buying power and increased competition among intermediate chains will demand enhanced marketing efforts. Being ready to say yes to a large buyer will be essential to get into some of these chains such as Whole Foods. Michigan State University Extension educators working with the MSU Product Center can assist new and expanding food producers create viable business plans to meet this need.